The price range values Xiashun at approximately 14 to 19 times its 2008 earnings, according to a source close to the company. The company, which is brought to market by JPMorgan and UBS, has no direct comparables as most of its local and overseas counterparts are privately held, but the source says packaging companies tend to trade at an average multiple of 21.5 times 2008 earnings.
The earnings growth of beverage companies like China Mengniu Dairy and China Huiyuan Juice Group also offer a hint as to XiashunÆs future prospects because consumable companies like these are affected by the same earnings drivers, he adds. Mengniu currently trades at a 2008 P/E multiple of 29 times, while Huiyuan trades at a multiple of 25 times, according to Bloomberg data.
The type of aluminium foil that Xiashun makes is mainly used for packaging, including sterile packaging for drinks and tobacco that is designed to preserve the taste and aroma of the products and to provide a longer shelf life. The company was the largest manufacturer of light-gauge aluminium foil in China in 2006 by sales, production volume and capacity, and the fourth-largest in the world by volume. It is the only Asia-based supplier of light-gauge aluminium foil to Tetra Pak, a global packaging and food processing company specialising in aluminium coated paperboard packaging for beverages and liquid foods.
As a market leader in its industry, the company has received good feedback from investors during pre-marketing.
ôIt is a niche play as well as a Chinese consumption play,ö says the source. ôAnd while (Xiashun) is insulated from competition among the Chinese consumption products producers, it enjoys the consumption boom in the country as the population gets richer and richer.ö
XiashunÆs leading position in the industry likely played a role in its decision to go ahead with the IPO despite the current fickle market environment. Demand for new listings has remained strong during the IPO phase, but some recent newcomers to the Hong Kong Stock Exchange have come under significant pressure once they have started trading. Among them is Chinese shipping services provider Sinotrans Shipping, which fell 13% from its issue price to close at HK$7.12 on its trading debut last Friday, even though it had the support of seven cornerstones who took a combined 13.6% of the deal. The offering also received strong demand with the institutional and retail tranches 85 times and 252 times covered, respectively.
Xiashun has also set aside part of its deal for cornerstone investors. According to sources, Bank of China, Chinese EstatesÆ chairman Joseph Lau, and Chow Tai Fook (which is the private investment vehicle of New World Development chairman Cheng Yu-tung), have each agreed to buy $15 million worth of shares. Depending on the final price, this means they will take up between 16.5% and 22.5% of the deal.
Cornerstones typically help support an offering in the aftermarket as they will be locked in for a certain period of time and thus prevented from selling their shares immediately after the debut. Even so, this is a popular way of investing in IPOs for Hong Kong tycoons and institutions since they receive a guaranteed allocation that is typically a lot larger than what they would have been able to achieve had they submitted an order the usual way. Thus, it isnÆt unusual for some of the most frequent cornerstone investors to get involved in several IPOs at the same time.
Bank of China is a case in point. Aside from its support of Xiashun, the Chinese lender is also a cornerstone investor in Chinese refrigerant and polymer producer Dongyue Group, which is also in the market at the moment. Together with Leslie Lee Alexander, the owner of the Houston Rockets basketball team, and Kuwait China Investment Company, Bank of China has agreed to buy approximately 10% of the up to $176 million offering.
In order to avoid going head-to-head with China RailwayÆs massive offering, Xiashun has also rescheduled its IPO timetable. According to a source, the aluminium producer could have launched the roadshow a week earlier and priced the deal two weeks ahead of the current timetable, but chose to delay slightly to give retail investors a proper chance to invest in its offering. Under the new timetable, the company will set the final price on December 11 and will start trading on December 18.
ôInvestors will have gotten their funds back from the China Railway offering by the time Xiashun is building its book,ö says the source.
China Railway Group kicked off the roadshow for the H-share portion of its combined $5.5 billion A- and H-share offering on November 20. The H-share portion accounts for 45% of the deal, or $2.48 billion, and is due to start trading on December 7.
Xiashun is offering 500 million new shares, or approximately 25% of the company, with 10% earmarked for retail investors and the rest for institutions. The deal carries the normal Hong Kong IPO structure with a 15% greenshoe and a clawback mechanism that could boost the size of the retail tranche to 50% if it is more than one hundred times subscribed.
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